Jenkins proposes state law to allow ‘crowdfunding’

State Rep. Nancy Jenkins, R-Clayton, has introduced legislation that would allow companies to get capital for start-up or expansion by “crowdfunding.”

Crowdfunding is generally described as many people making small investments in a company, usually through an Internet site.

The legislation would allow intrastate investing only, meaning companies seeking funds would have to be organized or incorporated under Michigan law and investors would have to be Michigan residents.

The stock offerings and investments would not be regulated by the U.S. Securities and Exchange Commission, which has jurisdiction over interstate stock offerings.

Michigan’s Department of Licensing and Regulatory Affairs most likely would be charged with administering the law, Jenkins said.

A federal law, the JOBS Act of 2012, also would allow crowdfunding for companies, but the SEC has not yet issued rules regulating the practice under that law.

Under Jenkins’ proposal, there would be a fundraising cap of $1 million within a 12-month period if the issuer of shares does not provide an audit, or $2 million if the issuer does provide an audit.

There would be a $10,000 cap on investment for nonaccredited investors but no limit for accredited investors.

Accredited investors must have a certain high level of net worth or annual income.

Jenkins said the proposed state law “supplements” the JOBS Act and eliminates some barriers to investment in the federal law, as well as freeing investors from some state filing and registration requirements.

“The regulations here at the state level are more easily navigated by the small investor,” Jenkins said. “This is a way for Michigan investors to invest in Michigan companies.”

Based on information from the Department of Licensing and Regulatory Affairs website, the amount investors could invest under the state law would be greater than under the federal JOBS Act.

The JOBS Act limits individual investments to either $2,000 or 5 percent of annual income or net worth if either is less than $100,000, according to the website.

“This opens it up for people below that threshold to be able to invest up to $10,000 on a project,” Jenkins said. “I just think that we’re allowing people to invest their money in the way that they see fit.”

Under the federal law, people with more than $100,000 income or net worth can invest a maximum of $100,000, according to the Licensing and Regulatory Affairs website.

The total amount a company could sell in stocks in a 12-month period would be $1 million under the federal law, the website says.

Under the proposed state law, many investments would be by local people in local companies, so the reputation of the company would play a role in people’s decisions to invest, Jenkins said.

Jenkins said Adrian Downtown Development Authority and economic development coordinator Chris Miller suggested the law to her during a coffee hour she hosted to meet constituents.

“It really allows all of the citizens of Michigan to engage in the success of these companies in a way that was not allowed before,” Miller said.

He first mentioned the crowdfunding possibility to Jenkins and state Sen. Bruce Caswell, R-Pittsford, early last spring, Miller said.

Conventional lenders are not structured to take risks, and the new law would open up opportunities in many communities, Miller said.

The law also offers “good protections” to investors and businesses, he said.

Paula Holtz, economic development director for Tecumseh, said access to capital has been one of the biggest obstacles businesses have faced in the last couple years.

The proposed crowdfunding law could be a tool to help overcome that, Holtz said.

The proposed law is possible under an exemption for intrastate stock offerings in the Securities Act of 1933, Miller said.